Brown-Forman Corp (BF.B) 2004 Q3 法說會逐字稿

Good morning.

My name is Kimberly and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Brown-Forman third quarter earnings release conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question and answer period.

If you would like to ask a question during this time, simply press star then the number one on your telephone keypad.

If you would like to withdraw your question, press the pound key.

Thank you.

Mr Whiting, you may begin your conference.

Good morning.

This is Lawson Whiting speaking.

I am the Director of Investor Relations at Brown-Forman Corporation and I would like to welcome you to our third quarter fiscal 2004 conference call.

Today Paul Varga, CEO of Brown-Forman Beverages, will begin the discussion with a review of trends in the worldwide wine and spirits business and of our brands' performance in the third quarter.

Phoebe Wood, our Executive Vice President and Chief Financial Officer, will follow with more detail on the financial results of both our beverage and consumer durables businesses and provide some guidance on our expectations for the balance of this fiscal year.

We will then take questions from investors.

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Words like believe, expect, anticipate and project identify a forward looking statement which speaks only as of the date of this statement is made.

Except as required by law, we do not intend to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

These statements are subject to a number of important risks and uncertainties that could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed.

These include but are not limited to changes in general economic conditions, political and social trends, impact on profits earned overseas by a strengthening U.S. dollar against foreign currencies, especially the British pound, reduced bar, restaurant, hotel and travel business in the wake of another terrorist attack, such as occurred on 9/11.

Developments in the three class action lawsuits filed against Brown-Forman and other spirits, beer and wine manufacturers alleging that our advertising causes illegal consumption of alcohol by those under the legal drinking age or other attempts to limit alcohol marketing thru either litigation or regulation.

Tax increases whether at the federal or state level, increases in the price of grain and grapes, continued depressed retail prices and margins in our wine business because of existing grape contract obligations and a worldwide over supply of grapes and the effects on our consumer durables business to the general economy, department store business, response rates in our direct marketing business and profitability of our outlet mall operations.

These statements are also subject to the factors mentioned in part one, item two of the company's form 10K for the year April 30, 2003, which we incorporate herein by reference.

Now I'll turn the call over to Paul Varga.

Thank you, Lawson, and good morning, everyone.

The third quarter of fiscal 2004 was very strong for Brown-Forman.

In fact, it was the strongest third quarter in the history of the company with record levels of sales, operating profits and earnings per share.

All in all, our beverage business, led by Jack Daniel's and Southern Comfort, remains healthy.

However, while our wine performance has stabilized somewhat, the environment for wine has not really improved and our popular priced U.S. spirits' brands are struggling this year.

I would first like to discuss some of the broader industry trends which are affecting our spirits business and then focus on our brands and their performance over the past quarter.

The well documented positive trends in the U.S. spirits market continued through the holiday season and are certainly boosting our confidence in the growth prospects for our premium spirits brand.

These solid industry trends, as measured by the recent NABCA data, has steadily accelerated through the course of calendar year 2003.

Total spirits volume according to the NABCA data was up over 4% in calendar 2003, the strongest showing in many years.

And the most recent data is even stronger.

It is also very clear that the premium brands are performing best in the U.S. and we certainly expect this trend to continue for the foreseeable future.

As I said earlier, the popular priced brands are not doing as well as the industry as a whole.

Our large off premises driven category leaders, such as Canadian Mist and Early Times are particularly susceptible to the heighten price competition and discounting that has occurred over the last 18 months.

Additionally, we are continuing to experience difficulties for Early Times in Japan, the only non U.S. market where we have a sizeable popular price business.

Outside of the U.S., the environment for premium spirits is rather mixed.

The United Kingdom continues to be one of the strongest markets in the world for us.

However, we are continuing to see weakness from several countries on continental Europe.

Stricter enforcement of drinking and driving laws, which we support, and public awareness campaigns in France are hurting nearly all wine and spirits companies operating in that country and we are no exception.

Germany, which is the third largest market in the world for Jack Daniel's continues to struggle with a stagnate economy.

And although underlying volume trends for Jack Daniel's in Spain have been fairly good, price increases are tougher to achieve as the large scotch brands have been moving prices downward over the last couple of years.

It is also worth noting that we are reducing inventories in both continental Europe and the U.S. this year, so our sales figures will actually be a bit softer than our overall consumer take away trends.

In particular, the retailers throughout Europe continue to cut back on overall inventories and as a result, we expect Jack Daniel's and Southern Comfort inventories to be down noticeably in continental Europe by the end of the April this fiscal year.

Year to date, we estimate these inventory reductions have reduced operating income by approximately $5 million.

Let me now shift to Asia, where results have also been mixed.

The whiskey market remains very challenging in Japan and our volumes are down this year.

However, we have taken our first price increase on Jack Daniel's in that market in many years,so we have seen margin improvement.

Korea, which was such a hot super premium whiskey market for the past few years has slowed significantly.

Jack Daniel's continues to maintain its market share but the whiskey market has weakened as consumer sentiment and spending has softened noticeably.

It is interesting to note however that in spite of the current difficulties in Korea, today Jack Daniel's sells as many cases in Asia outside of the Japan as it does inside.

We are proud of this fact, given that we sold virtually nothing in Asia outside of Japan just 10 years ago.

Evidence of this is China, which has really become a nice growth market for Jack Daniel's.

We are expanding the brand's consumer franchise at a strong and steady rate and we have high hopes that China will continue to be an exciting long-term growth market for Jack Daniel's.

Australia also remains a vibrant market.

Profits are up considerably due to foreign exchange and continued progress on Jack Daniel's Tennessee Whiskey.

But the real success story in Australia is our ready to drink brand Jack Daniel's & Cola, which remains very hot.

Sales continue to advance at a double digit rate and the brand has now surpassed the 700,000 case mark on a 9 liter basis.

Let me now turn to our key brands and discuss how they are performing.

We passed one very significant milestone for Jack Daniel's this past quarter.

On a 12 month rolling basis, the brand eclipsed the 7 million case mark this past December.

In addition to being the best selling American whiskey brand in the world by a wide margin, the brand is the 5th largest premium spirits brand in the world and still climbing.

Jack Daniel's will remain the focus of our time and investment as we strive to add the next million cases to the brand's worldwide volume base.

Year to date, our worldwide depletion growth for Jack Daniel's is running in the mid single digits.

Depletions in the United States, which represent about 55% of the brand's total volume, continue to accelerate and are now also up in the mid single digits.

As I mention earlier, shipments continue to trail depletion growth in the U.S. as we have taken several days out of wholesaler and retailer inventories.

International growth is somewhat mixed with continuing strong growth rates in the United Kingdom, South Africa and certain countries in Asia, but we see general weakness in continental Europe.

Like the U.S., overall international growth rates on Jack Daniel's are up in the mid single digits, both for the quarter and year to date.

Again this year Southern Comfort continues to provide solid growth for our beverage business.

As we have mentioned previously, this brand has gone through a real revitalization over the past couple of years.

In the U.S., where a premium repositioning has been underway for the past five years, a new package and increased investment has fueled above market price increases, solid volume growth and very impressive profit delivery.

A key area of focus for us as we look out into the future is to sustain and perhaps even accelerate the momentum that we have built here in the United States.

And in the United Kingdom, where the brand had lost volume over the past 10 years, the brand is growing quite nicely again.

Much of this can be attributed to Brown-Forman assuming distribution responsibilities for our own brands in the UK where the brand is receiving significantly more focus than it previously had.

One of the opportunities that we will be focusing on over the next few years is replicating elsewhere the nice success we are seeing on Southern Comfort in both the United States and the United Kingdom.

Results for Finlandia are getting a little better.

As we have discussed before on these conference calls, the U.S. market for premium imported vodkas while growing consistently is also extremely competitive.

We introduced a new package for Finlandia this past fall and it has helped to accelerate our consumer take away trends in the United States.

However, profits from this volume growth have been offset by the weaker U.S. dollar, which is reduced the brand's overall gross margin in the United States.

Of note is the brand's performance outside the U.S. where the growth has been quite strong since we added eastern European countries to our distribution arrangement.

Strong vodka markets like Poland are important to Finlandia but margins for the brand are lower than here in the U.S.

Finally, let me shift to our wine business.

As has been discussed numerous times before, a global over supply of grapes has resulted in significant pricing pressure across the US and an overall extremely competitive market.

The most recent Nielson trends indicate some slowing of the growth in the U.S., particularly for the California brands.

And although this past harvest from California was smaller than the previous year, the latest estimates from Australia suggest a larger harvest.

Net-net the global over supply of wine persists and we don't expect it to get much better over the next year.

So what are we doing against this backdrop?

Over the past year we have worked hard to improve the price position of our wine brands but it is has not been easy.

Per case pricing for our leading brands, Bolla and Fetzer, are higher year over year, but our volumes are also suffering.

Both brands are in an extremely competitive segment of the market but it is our plan to hold our pricing going forward.

One way we will be trying to stimulate volume growth for Bolla is through the introduction of additional line extensions and varietals this upcoming summer.

Additionally, we will be rolling out new packaging for both Fetzer and Bolla over the next year, which should help both brands' appeal and shelf presence.

In addition to line extensions, we are also looking to introduce new brands and labels over the next six months.

In general, we will be more aggressive with our new product introductions and wine for two reasons.

One is to help alleviate our over supply situation in California and second, we recognize that new brands and labels have been the drivers of wine industry growth over the past 10 years.

We will need to be a part of this to sustain and build our share.

Accordingly, we expect this to be a very busy summer for our wine group.

In addition to working hard on the revenue line, we continue to focus on reducing our cost base.

We have taken approximately $4 million in restructuring charges this fiscal year related to SG&A reduction.

The severance costs have offset the benefits in this fiscal year, but we will see some benefits beginning next year.

This concludes my update and I will now turn the call over to Phoebe Wood, our Chief Financial Officer, who will walk you through more specifics on our third quarter results and update our guidance for the full fiscal year.

Thank you, Paul, and good morning, everyone.

This morning Brown-Forman reported earnings per share of 66 cents, up 29% over the same period last year.

Beverage operating income was up an outstanding 26% during the quarter, but consumer durables as down 30%.

For the first nine months of the fiscal year, earnings per share were $1.64, up 20% over last year.

Year to date results have benefited from favorable foreign exchange trends, which have contributed 14 cents per share and the March 2003 share repurchase which contributed 12 cents per share.

Year to date, we have seen strong earnings growth for both Jack Daniel's and Southern Comfort on a global basis and increased profits from the company's new distribution arrangement in the United Kingdom.

These gains have been partially offset by a charge of 6 cents per share to settle a lawsuit with Diageo Great Britain Limited involving the distribution of Jack Daniel's in the UK, lower profits from the consumer durables segment and lower trade inventory levels for our global spirits brands.

The story behind our quarterly and year to date trends is fairly consistent.

Our beverages segment remains fairly strong while consumer durables remains soft.

More specifically, the four biggest drivers of our earnings growth this quarter were first, continued solid growth in gross profit from our core spirits brands coupled with flat overall beverage advertising investments.

As we stated in the press release, this somewhat subdued level of advertising investments will reverse itself in the fourth quarter when we are planning significant increases in brand expense for our spirits brands.

Second, we had a modest rebound in earnings from our wine brands during the third quarter.

This was primarily driven by reduced expenses, not a real improvement in the underlying business trend.

Unfortunately, some of the gain from our wine brands will be given back in the fourth quarter as we will be reducing field inventories.

The third issue is the positive impact from the March 2003 share repurchase, which accounted for 5 cents of the quarter's increased earnings.

Excluding this benefit, earnings still increased 10 cents per share or 20%.

The last issue was a 3 cent per share net benefit from a weaker dollar.

Beverage revenues were up 12% for the quarter although the weaker US dollar accounted for about three points of that revenue growth as export sales of our core spirits brands are benefiting from foreign exchange trends.

And our revenue growth has also benefited from the addition of new markets to the distribution agreement for Finlandia, particularly Poland, where we expect to sell about 250,000 cases this year.

Gross profits in beverages was up 16% for the quarter and up 14% through the first nine months of the fiscal year.

Importantly, the gross margin in our beverages segment has increased from 50.0% through the first nine months of fiscal 2003 to 51.2% this year.

After experiencing a decline in gross margin in fiscal years 2002 and 2003, we are certainly pleased to report an increase in the gross margin for the beverages segment.

Advertising expenses were essentially flat during the quarter and are up 5% year to date.

Because advertising will increase so much in the fourth quarter, we expect that full year advertising expenses will be up near double digits, led by healthy increases for our core spirits brands and several of our developing brands, offset slightly by reduction in advertising for our wine brands.

Some of the increase is purely a timing issue as our third quarter increase is relatively small.

But as Paul mentioned, we see a number of good investment opportunities for our spirits brands and we believe the long-term payback will be substantial.

Beverage SG&A costs were up about 12% for the quarter and up 13% year to date.

These are obviously significant increases in SG&A expenses so I'd like to expand upon the main drivers behind this increase.

First, we acquired an additional 35% interest in Finlandia Vodka Worldwide in December 2002, bringing our total ownership to 80%.

As a result, we now consolidate ?Finlandia Vodka Worldwide in our financial statement.

The sales and distribution organization we now have working in central and eastern Europe combined with G&A in Helsinki, are significantly increasing our beverage SG&A expenses.

The second issue is the consolidation of Tuoni e Canepa which we acquired in February, 2003.

We now recognize additional G&A associated with consolidating the Tuaca brand's operations in Il Horno(ph), Italy.

From this point forward, the quarterly comparisons will be normalized for these two acquisitions because we will be lapping comparable periods.

Three, we've also incurred about $4 million in wine reorganization costs over the past three quarters.

And the last major reason for the increase in beverage SG&A cost is pension expense, which is up over $8 million this year.

Overall our beverage business looks solid.

Our spirits brands have some good momentum, particularly in the United States, and we believe comparisons for our wine brands should be getting easier as we move into next year.

All in all, we are comfortable with the outlook for this segment for the remainder of the fiscal year and we are positioning ourselves for a very good start to next fiscal year.

Turning to the consumer durables segment, results for the third quarter were disappointing.

Although net sales were up 2% for the quarter and are flat year to date, profits were adversely affected by higher levels of discounting and a shift in product mix.

We remain cautiously optimistic about the wholesale channels as sales and profit declines in the quarter were affected by January's poor weather in the north east United States as well as some one-time transition costs incurred as we move into our new centralized distribution center.

We're also pleased with the recent introduction of our (inaudible) co-branded product as it has been greeted with enthusiasm throughout the trade and it getting good early results in the bridal registry business.

Net sales in our retail outlet stores improved slightly over the past quarter but overall results continue to be negatively affected by higher levels of discounting.

The most disappointing area for this segment is the continuing challenges being faced in the domestic direct consumer channel.

Although sales picked up slightly this past quarter, consumer response rates are well below expectations this year.

To offset a shortfall in gross profit we have reduced both our consumer direct advertising and catalog circulation for this channel.

Overall segment operating income dropped $4 million during the quarter, as the reduced advertising investment in the direct channel was not enough to offset the higher pension expenses and the nonrecurring reorganization charge.

As most of you know, we have made several senior management changes at Lenox over the past quarter.

The most notable is the new President and CEO, Jay Hanauer, who headed production for our spirits brands for past eight years.

A seasoned executive with many leadership talents, Jay is well respected by his peers as well as by the people that worked with him in the production areas of Br9own-Forman.

Jay has not only broad based experience in all aspects of manufacturing and production, including supply chain management but he's an excellent manager and motivator of people.

For the past several months, Jay has led a comprehensive review of this business and identified a number of opportunities to return the business to growth.

Although this is an industry which certainly faces a lot of challenges, we believe that new leadership is needed at Lenox to help the company react faster to this changing environment and to become more consumer oriented and brand focused so that it can compete more successfully in today's marketplace.

Although financial results have been disappointing this year, we are optimistic that Jay and his team will find ways to improve the results and return this business to health.

Now to the outlook.

In the fourth quarter of this fiscal year, we expect the strong consumer demand for our major spirits brands to continue.

However, profit growth in the fourth quarter will be tempered by the planned significant increase in advertising investments behind those spirits brands, higher pension expenses and the continuing focus on lowering wholesale and retail inventories.

As a result of these factors, we are narrowing the guidance for fiscal 2004 earnings to a range of $2.09 to $2.13 per share or EPS growth in a range of 15 to 17% for the fiscal year.

This guidance includes a 6 cent per share cost related to the Diageo litigation from the first quarter.

I bring this issue up because nearly all of the analysts full year estimates as submitted to First Call exclude this one-time charge from our first quarter results.

That concludes our prepared remarks.

Now Paul Varga, Lawson Whiting and I will answer any questions that you may have.

At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad.

Your first question comes from Dara Mohsenian of J.P. Morgan.

Good morning.

Good morning.

One quick clarification, first.

The reorganization charge you guys mentioned in consumer durables, how much was that in the quarter?

$2 million.

Okay.

And is that 2 million charge is included in the full year earnings guidance?

Yes.

Yes.

Okay.

All right.

And then in the beverage segment, the spending from an advertising standpoint was lower than I think everyone expected in Q3.

It sounds like it's just the timing shift into Q4 given the full year expectations.

Can you take us through exactly what happened there from a timing standpoint?

Yeah, we would be happy to.

Yeah, I mean, I think it is we have a large portfolio of brands, all of which have different seasonal points of emphasis and one of the largest factors in it has been the roll out of Finlandia Vodka, sort of our revitalization program, particular in the United States which has been supported here and is gaining momentum here through the spring months.

And so year on year you see a large increase in our investment behind Finlandia.

But it is also true of our investments behind a variety of things, such as Jack Daniel's media, but also Southern Comfort, which has a large promotional push surrounding the Mardi Gras, and also things such as a new ready to drink introduction in Germany for the brand and continuing investments behind some of our smaller developmental brands such as Woodford Reserve and Tuaca.

Okay.

And was there any kind of tactical shift, is that why marketing spending is moving into Q4 or is that just kind of the way it fell out?

More the way it has fallen out in terms of brand by brand and country by country spending.

There was nothing that said these next 90 days for the company are so critical that we're moving a bunch of planned beverage investment into that segment.

Okay.

Dara, it was kind of funny, we were actually laughing before this call got started saying this is one of those times we wish we were a British company that only had to report every six months.

You never would have seen this number because it, obviously, would have been washed out between the two quarters.

But it really was a timing issue more than anything.

Right.

The full year guidance you gave for advertising of wine and spirits, it was actually a little bit ahead of what I forecast.

Is that in line with what you guys were thinking three months ago or have you decided to go back and reinvest some incremental marketing here in Q4 in addition to the timing shift from Q3?

I think it was more in line with our plans.

Okay.

Great.

Thank you.

Thank you.

Your next question comes from Andrew Conway of CSFB.

Good morning, Paul and Phoebe.

Hi, Andrew

Couple questions.

First we would love to hear the rationale behind reducing field inventories in the U.S. at a time your depletions are accelerating.

If you could talk a little bit about why now and how long you anticipate the inventory de-stocking to move forward.

Is this beyond a fourth quarter event, how many days you think you'll take out?

I know you mentioned several.

And how long you think it will take.

Andrew, let me jump on that one.

Great.

First of all, a couple of things.

We have said on previous calls we continue to expect U.S. trade inventories to continue to go down.

Right.

We kind of previously set a day, one day per year, kind of as a good overall number.

It's been a little faster than that this year but not materially different from that number.

On the spirits side.

On the wine side a lot of the trade inventory numbers we were talking about were wine related because those are coming down certainly more aggressively than one day a year.

But the biggest issue really, a big issue for the profit pool is more of a European statement than a U.S. where we're taking, particularly on Southern Comfort, we are making permanent changes to the level of inventories held in that market.

Really two reasons driving it.

One are the retailers in Europe are all doing this and they want to hold less inventory and so we're moving along with that and then the other part is just working with our distributor partners, particularly Bacardi, who just continue to work down the supply -- get more efficient from a supply chain perspective.

So it's a combination of about five different things that are all bringing the numbers down.

Your question, Andrew, had to do with the U.S. and it really is much more of a continental Europe effect than the U.S. only.

Okay.

Except for wine.

Okay, great.

And as a follow up too, guys, on the brand expense issue, is the fourth quarter, Paul and Phoebe, the start of a specific brand strategy that also should carry over at similar rates into fiscal '05 or is the step up strictly a function of finishing the year on just strictly an issue of timing?

I think it's some of timing but I mean in general, if you go back beyond just the quarter, we have behind our premium spirits brand been in investment mode.

We have been making good steady investments behind Jack Daniel's, Southern Comfort and one of the things that has occurred this year is an incremental investment position behind Finlandia as we tried to relaunch that brand.

So I think on our premium spirit brands where the environment is conducive to it, particularly in places like the United States and United Kingdom today, you will see us continue to pursue those opportunities with really good solid investment position and where places are soft, we, for example in places like Continental Europe today, we don't see ourselves taking as strong a position as we would have a couple of years ago.

Great.

And finally, Paul, as you look to fiscal year '05, is it reasonable to think about double digit operating income growth for spirits and wine on a U.S. dollar basis?

Andrew, we have not and are not planning on issuing any kind of formal guidance for F '05 yet.

In general our target is high single digit growth and we love it when we achieve double digit growth, which we have done in a few of the last 10 years but I mean, overall our guidance is high single digit.

That's just a general statement without giving any specificity to F '05

Thank you all very much.

Thank you.

Your next question comes from Bryan Spillane of Banc of America.

Good morning, guys.

Hi, Brian.

A couple of questions.

First, for Paul, could you just let us or give us a little bit more color in terms of how you're spending your marketing dollars and where the incremental spend will go, more specifically?

I'm just interested in trying to get a flavor for how much of it is sort of television advertising, print advertising and how much more, if you're spending more, on premise, in bars and restaurants.

You just nailed the two largest components of the incremental spending and that's actually not just this year but the last couple of years.

It would be a combination of media and on premise would be the two priorities for our incremental spending and I mean along side the on premises I would also put in there general areas of lifestyle marketing, whether it be sponsorships or other such promotions.

It will vary by brand and by brand building model, depending upon whether one of our brands is a, for example, a media driven model versus a promotional.

A lot of the incremental investment we're making today behind Finlandia and our developing brands, of say Woodford Reserve or Tuaca, tends not to be so media driven and more on premises promotionally driven.

Jack Daniel's and Southern Comfort tend to have a much larger component of media in their incremental investment.

All right.

Thanks and just as a followup or another question, can you also just talk a little bit about that dynamic on the popular brands, as a segment of the industry, it's underperformed and do you see over a longer term the potential for some rationalization of brands and capacity at the low end to help support not only over all industry pricing but just to bring some more discipline on the pricing side?

No, not necessarily.

If you go back, the popular price leaders were performing pretty well post 9/11.

They were, as a segment, as the industry saw softening in a lot of the on premise sector and with some of the premium brands, the off premise leaders, not just ours, but throughout the industry, tended to do pretty well.

I think as the economy has recovered the performance in general for those segments has softened a little bit.

You got to remember, we have a couple of very large and in Canadian Mist case, a very leadership position in Canadian whiskey and they are a great source of cash and income for us.

So I think the key thing is to shore up our position and our share, compete effectively and we do not intend to have investment spending postures against that segment at all but they're very important to us and so we think we're going to put together the programs that require us to sustain and perhaps even take a little bit of share in that game.

And Phoebe, if you could just remind us, what are you looking for for capital spending for the year?

About 70 to 75.

Thank you.

Thank you.

As a reminder, ladies and gentlemen, if you would like to ask a question, please press star then the number one on your telephone keypad.

Your next question comes from Graeme Eadie if Deutsche Bank.

Hi, good morning.

Apologies if you've covered this ground earlier, unfortunately my line cut off when Paul was speaking.

It's just on Jack Daniel's.

I mean, obviously what you've got there is strong advertising support behind the brand, the demographic trends in the states are favorable.

But that's been the case now for a few years.

Paul, what do you attribute the recent step off in growth to behind the brand and given that the volume growth has accelerated, are you perhaps encouraged to be a bit more aggressive on pricing this year as a consequence of that?

Graham, let me cite a couple of facts going back maybe a couple of years on it.

We have stepped up our investment in the most recent sort of 18 to 20 months behind Jack Daniel's in the United States.

I think it's the recovery we're seeing volumetrically is attributable to, in part, growth of the economy coming back.

You just almost can look across virtually every strong call brand in the United States, brands that have good on premise presence and you will see an improvement in their trends over the last 24 months.

And we are are no exception.

I think we have done a better job of competing effectively, some of it has been that we have put forward I just think a better effort and some of it has dealt with the promotional effort.

Some of it has dealt with access to more television and media outlets.

So I think there's a combination of factors that have helped Jack Daniel's to return to sort of a mid single digit growth rate.

While doing that, we have not really backed off our very, very long-term pricing philosophy which is really one of pricing leadership and where we have been in a very consistent range for a very long time on Jack Daniel's pricing and it's program has worked very well for us and so we think the combination of very nice volume recovery and continuing to take the price up at reasonable levels that we've been comfortable with for quite some time is a good recipe for Jack Daniel's.

You haven't mentioned your distributors there.

Do you think perhaps with some of the changes that has characterized the U.S. in the last nine months that you have perhaps got a bit more support from them as a consequence of what's been happening?

Certainly there are some pockets, California comes to mind, where frankly Brown-Forman brands and Jack Daniel's became more important and we are seeing extra push in some cases behind getting out and helping us with our promotional effort.

There's no doubt about it that that helps where that exists.

It is encouraging when it happens and I would put it up there as something that has also contributed.

Great.

Thank you very much, indeed.

Thanks, Graeme.

There are no further questions at this time.

No more further questions, okay.

Just as an FYI, our next conference call is going to be on May 27th and it's going to be an afternoon call at 4:00 in the afternoon.

Thank you very much, everyone, for joining us on the third quarter conference call.

This concludes today's conference.

You may now disconnect.